I am advising a professional services organization whose cost of labor has gone up double digits every year for the past three years, but they haven’t increased their prices. Their customers are still getting unbelievable service and in fact, they’re now getting them at a discount. In fact, some of their engagements are costing them money! When I pressed my client on it, they said they were nervous to go back and ask for price increases, even though it was actually costing them money to keep those clients.
So many people are reluctant to go back to clients and raise prices, but it seems particularly difficult with those they’ve been with for a very long time and for those that sell services vs. products. Why is that?
With legacy clients, you’ve likely developed a more personal relationship which should make it easier to have an open and honest conversation, but it doesn’t. For service providers, you’re implying that the costs of human capital have gone up, which is somehow harder to justify then saying “costs have increased on X, global supply chain, blah blah” And if you are a solopreneur, raising your prices means you’re telling your clients that YOUR time is worth more now, and that’s a really hard thing to do for some folks, particularly women.
While nobody gets super-excited when you say, “Hey, I need to raise prices,” if you are delivering the value, it shouldn’t come as a surprise. I don’t want to say they’ll be happy to pay more, but if they understand the value they are getting from your services, they will almost happily pay it.
What goes up … keeps going up
The price of life goes up over time; it doesn’t ever go down. What you are charging your clients should follow suit. Make sure to rethink your pricing methodology on a regular basis to ensure it’s keeping up with the increasing cost of your services, whether that’s technology or people or any other inputs. And on the off-chance your costs do go down or you’re able to leverage efficiencies over time or through technology, you may want to pass those on to your client as well. Who wouldn’t love to get that call?
Avoid the conversation entirely in your SOW
The best way to enact price increases is to set expectations from the beginning. You can even put automatic price increases into your SOW. Yes, you heard me: automatic price increases.
I’m a fan of an auto-increase percentage every year. So if we’re still engaged a year from now, your pricing will go up automatically. The other opportunity to set expectations is to put in some language that says, “This price is good for the first X months, and we reserve the right to review and adjust prices accordingly after that time.”
But then you still have to have that conversation, so I like the idea of building in a minimum automatic cost increase. This way, you don’t ever have to have the discussion, and you still get paid what you’re worth.
Again, none of this works if you’re not providing value to your clients. You want your clients to feel they couldn’t run their business without you. When my clients pay their bills immediately, I know it’s because I’m giving them the value they want (and they get me!).
If you’re hesitant to increase your fees, even in the face of massively increasing costs, let’s talk through it together.